Regulatory Developments
The Federal Reserve took a number of policy actions since the publication of the previous Supervision & Regulation Report in April 2021. These actions continue to promote the safety and soundness, transparency, and efficiency of the banking system. Significant actions are detailed in table 1 below, and all Supervision & Regulation (SR) and Community Affairs (CA) letters are available on the Board's public website.4
Additionally, the Federal Reserve continued to engage with other financial regulators and the public on emerging and transforming areas of risk, as detailed in boxes 3 and 4 below.
Table 1. Federal Reserve or interagency rulemakings/statements (proposed and final)
From 4/15/2021 to 9/9/2021
| Date issued | Rule/guidance |
|---|---|
| 4/22/2021 | Agencies invite comment on proposed rule for income tax allocation agreements. Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210422a.htm |
| 5/5/2021 | Federal Reserve Board invites public comment on proposed guidelines to evaluate requests for accounts and payment services at Federal Reserve Banks. Federal Reserve Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210505a.htm |
| 5/7/2021 | Federal Reserve Board invites public comment on proposed changes to Regulation II regarding network availability for card-not-present debit card transactions and publishes a biennial report containing summary information on debit card transactions in 2019. Federal Reserve Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210507a.htm |
| 5/14/2021 | Federal Reserve Board announces the third extension of a rule to bolster the effectiveness of the Small Business Administration's Paycheck Protection Program (PPP). Federal Reserve Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210514a.htm |
| 6/2/2021 | Federal Reserve Board issues final rule amending Regulation D regarding interest on reserve balances. Federal Reserve Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210602a.htm |
| 7/1/2021 | Federal Reserve announces it will soon release a new tool to help community banks implement Current Expected Credit Losses (CECL) accounting standard. Federal Reserve Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210701a.htm |
| 7/13/2021 | Agencies request comment on proposed risk management guidance for third-party relationships. Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210713a.htm |
| 7/20/2021 | Interagency statement on Community Reinvestment Act joint agency action. Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210720a.htm |
| 7/20/2021 | Federal Reserve Board statement on the Community Reinvestment Act. Federal Reserve Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210720b.htm |
| 8/27/2021 | Agencies issue guide to help community banks evaluate fintech relationships. Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210827a.htm |
| 8/30/2021 | Federal and state financial regulatory agencies issue interagency statement on supervisory practices regarding financial institutions affected by Hurricane Ida. Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210830a.htm |
| 8/31/2021 | Federal and state financial regulatory agencies issue interagency statement on supervisory practices regarding financial institutions affected by California Wildfires. Interagency press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210831a.htm |
| 9/9/2021 | Federal Reserve published a paper describing landscape of partnerships between community banks and fintech companies. Federal Reserve Board press release: https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210909a.htm |
Box 3. Bank Innovation and Third-Party Relationships
The Federal Reserve supports responsible innovation by supervised institutions. Innovation should be conducted in a manner that ensures the safety and soundness of institutions and the protection of consumers. Many banks promote innovation through partnerships with third parties, including nonbank financial technology companies (fintechs). In light of the growing partnership landscape, Federal Reserve staff have published, or proposed, three resources in the third quarter of 2021.
First, in July, the Federal Reserve, along with the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) (federal bank regulatory agencies), requested public comment on proposed guidance designed to help banking organizations manage the risks of third-party relationships, including relationships with fintechs.1 Banking organizations often use third parties to provide products or services or to perform other activities. Banking organizations remain responsible for ensuring that such outsourced activities are conducted in a safe and sound manner, and in compliance with all applicable laws and regulations, including consumer protection laws. The federal bank regulatory agencies seek to promote consistency in their guidance, better address the use of third parties, and articulate clear risk-based principles for banking organizations of all sizes and complexity.
Second, in August, the agencies published a guide to help community banks assess the risks when considering relationships with fintech companies. This guide is intended to serve as a resource for community banks to use as they conduct due diligence on prospective fintech partners.2 Use of this guide is optional and does not create any new supervisory expectations. A community bank can choose relevant information in the guide based on its specific circumstances.
And finally, in September, the Federal Reserve published a paper on the evolving landscape of community bank partnerships with fintech companies.3 The paper describes different types of community bank–fintech partnerships and key considerations for engaging in them. The paper is based on insights gathered from a broad outreach effort and is intended to serve as a resource for both community banks and fintech companies.
The Federal Reserve will continue to provide resources and information as the banking system continues to innovate.
1. See "Proposed Interagency Guidance on Third-Party Relationships: Risk Management," 86 Fed. Reg. 38,182 (July 19, 2021), https://www.govinfo.gov/content/pkg/FR-2021-07-19/pdf/2021-15308.pdf. Return to text
2. See Board of Governors of the Federal Reserve System, "Conducting Due Diligence on Financial Technology Firms: A Guide for Community Banks" (Washington: Board of Governors, August 2021), https://www.federalreserve.gov/publications/conducting-due-diligence-on-financial-technology-firms.htm. Return to text
3. See Board of Governors of the Federal Reserve System, "Community Bank Access to Innovation through Partnerships" (Washington: Board of Governors, September 2021), https://www.federalreserve.gov/publications/files/community-bank-access-to-innovation-through-partnerships-202109.pdf. Return to text
Box 4. Banks and Digital Asset Activities
Supervised firms are exploring a range of services involving digital assets such as bitcoin or stablecoins. While the use of digital assets, and the distributed ledger technology they operate on, presents opportunities, it also poses heightened risks. Risks to supervised firms include those related to the Bank Secrecy Act/anti-money-laundering, cybersecurity, price volatility, and consumer protection.
The federal bank regulatory agencies are committed to working together to provide an active, coordinated, and timely response to innovation in digital assets. To that end, the agencies are engaging in a series of "policy sprints" to better understand risks associated with digital asset activities and provide further clarity as appropriate with specific regard to digital assets.
The Federal Reserve recognizes that the market will continue to innovate, grow, and expand globally, creating new opportunities and risks. The Federal Reserve will continue to look to respond in a timely and transparent manner to support responsible innovation at our supervised institutions.
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References
4. The Federal Reserve publishes SR and CA letters to address significant policy and procedural matters related to the Federal Reserve System's supervisory responsibilities and its consumer compliance supervisory responsibilities, respectively. SR letters are available on the Board's public website at https://www.federalreserve.gov/supervisionreg/srletters/srletters.htm, and CA letters are available are available on the Board's public website at https://www.federalreserve.gov/supervisionreg/caletters/caletters.htm. Return to text